Premium
Bank size and performance: An analysis of the industry in the United States in the post‐financial‐crisis era
Author(s) -
Nippani Srinivas,
Ling Ran
Publication year - 2021
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12255
Subject(s) - net interest margin , financial system , non performing loan , financial crisis , loan , return on equity , return on assets , financial ratio , business , net interest income , economics , interest rate , finance , profitability index , macroeconomics
We compare the 2007–2009 post‐financial‐crisis performance of US banks with their performance before the financial crisis, based on bank size using financial ratios. We find bank performance declined in the post‐financial‐crisis period as compared to its pre‐financial‐crisis performance, evidenced by reduced return on equity (ROE) and return on assets (ROA), higher debt ratios, lower net interest margin, increased net loan losses, more nonperforming loans, and, to a lesser extent, estimated losses on loans. In difference‐in‐differences tests between the largest and smallest groups, we find the biggest banks report significantly higher ROA and lower debt ratio, in addition to outperforming small banks in net interest margin and loan loss reserves. Smaller banks did better only in net loan losses. General economic conditions and interest rate changes are controlled for in our results. We conclude that small banks have a significant disadvantage in the industry in the post‐financial‐crisis era compared to both big banks and their own pre‐financial‐crisis historical performance.